Predictable Changes in Yields and Forward Rates

46 Pages Posted: 17 Jul 2000 Last revised: 9 Apr 2010

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Liuren Wu

City University of New York, CUNY Baruch College - Zicklin School of Business

Silverio Foresi

Goldman Sachs Group, Inc. - Quantitative Strategy Group

Abon Mozumdar

Virginia Polytechnic Institute & State University - Department of Finance

Date Written: January 1998

Abstract

We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the largest discrepancies are at short maturities. (ii) Reasonable estimates of one-factor Cox-Ingersoll-Ross models imply regressions on the opposite side of the EH than we see in the data: regression slopes are greater than one (iii) Multifactore affine models can nevertheless approximate both departures from the EH and other properties of interest rates.

Suggested Citation

Backus, David K. and Wu, Liuren and Foresi, Silverio and Mozumdar, Abon, Predictable Changes in Yields and Forward Rates (January 1998). NBER Working Paper No. w6379. Available at SSRN: https://ssrn.com/abstract=226127

David K. Backus (Contact Author)

NYU Stern School of Business

44 West Fourth Street
New York, NY 10012
United States
212-998-0873 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~dbackus/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://pages.stern.nyu.edu/~dbackus/

Liuren Wu

City University of New York, CUNY Baruch College - Zicklin School of Business ( email )

One Bernard Baruch Way
Box B10-247
New York, NY 10010
United States
646-312-3509 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://faculty.baruch.cuny.edu/lwu/

Silverio Foresi

Goldman Sachs Group, Inc. - Quantitative Strategy Group ( email )

32 Old Slip, 24th Floor
New York, NY 10005
United States
(212) 357-3508 (Phone)

Abon Mozumdar

Virginia Polytechnic Institute & State University - Department of Finance ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
703-538-8414 (Phone)
703-538-8415 (Fax)

HOME PAGE: http://www.nvc.vt.edu/abon

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
62
Abstract Views
1,558
rank
364,416
PlumX Metrics